Dax Technical Analysis 01/02/2017

The last trading day of January saw a few European indices slip away, perhaps because of immigration policy, perhaps because of the end of month profit taking, perhaps because of the latest Deutsche Bank scandal (how long can they survive these), perhaps because of the monetary policy expectations after the release of stronger inflation figures, perhaps a combination of all. The Dax closed 130 points down after surprising many bullish traders who jumped in expecting a bounce.

The first chart (below) is an hourly chart with a market profile indicator and tick volume which covers the 2017 period. After the sell-off from the highs we had a mini bounce on the first previous resistance zone (650-680) and then broke through to find support at the second zone (525-555). We are currently back inside the popular January range, so it seems likely we can find support here.

A long from 575 with stop below the low from yesterday (or the previous range support) could be interesting, target would be the range high and extended targets would be a break towards new highs.

04 Dax VP Chart

This next chart is the hourly and this is providing a buying signal, based on bullish divergence with price a making lower low and the oscillator making a higher low, this is coupled with an increase in volume so if this is the bottom of the move, we have a spot to go long.

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03 H1 Dax Chart

The final chart is the 5m chart, which includes the tick volume indiciator, RSI and a fibonacci retracement. It shows a volume lift around 8am (London, open) but also as RSI begins to cross back from overbought and price tags the 61.8% retracement. It could all just be coincidence, but after a heavy sell off, it’s a bearish signal short term. This either contradicts the previous signal above, or suggests that current price is not currently the best value for bulls and wait for a better entry.

Bears would be looking to sell with stop above 665 targeting a test of the range low, perhaps a break lower to complete an extension of the move.

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We are still above the 12400 previous resistance, so I am keen to watch this level for any reaction. When we look at the hourly chart, the oscillator (RSI) has come back to normal levels and is actually underneath 50, although price remains very high, providing excellent conditions for the development of a bearish divergence signal. The problem I see with 12400 is that it doesn’t really represent a significant pullback from the moves we have seen, so the level may not hold. But the longer price continues to trade sideways, the stronger that level could become.

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I have been watching the daily chart fairly closely recently and we have a bullish support zone between 10320-10500. I am expect for price to want to reach this zone and find its feet before building higher. The first attempt (on the 22nd) to test this support, held comfortably and we now seem to be lining up a second test. So I am thinking that we may see a couple of days of neutral/bearish behaviour as price looks to reach 10350, before heading much higher if it holds.

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The weekly candle is already looking pretty heavy at the moment, we have fallen below the median line on the daily chart fork, we are about on the daily 200 EMA and threatening to take out Tuesday’s low of 10800. If we take that out and are not rejected, then I would imagine 10600-10700 could be a target.

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Lots to digest in the market at the moment. With geopolitical tensions, Greece, our current Dax consolidation from the January rally, and now there are a lot of articles out there about the “divergence” of economic performance and monetary policy among three of the world’s most systemically important economies – the eurozone, Japan and the US which has added another layer of confusion for traders.

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